Jack Dreyfus: The Lion of Wall Street
Jack Dreyfus (1913 – 2009) is a market legend who headed a mutual fund which outperformed all other mutual funds by a large margin for the 12 years Dreyfus was in charge. In 1995, Jack authored an autobiography which profiled his life including his Wall Street experience and related accomplishments. Several of his thoughts on success in markets are shared in the book and echo commentary from other market legends. As such, this post shares some of those comments below as they may be worth consideration in your own process.
Before moving to the commentary, a few points deserve mention:
First, when Dreyfus retired, he hired Howard Stein as his replacement. Howard Stein in turn hired a young Stan Druckenmiller in the 1980s to run funds for Dreyfus. If you read the commentary below and compare it to Stan Druckenmiller’s approach, similarities emerge. The similarities in method combined with the related and respective success of Dreyfus and Druckenmiller indicate these methods are worth exploring.
Second, another big market success, William O’Neil, studied Dreyfus and incorporated Dreyfus’s approach into his own. The following O’Neil quote comes from the original Market Wizards book:
Jack Dreyfus, who managed the fund, was doubling the results of all of his competitors. So I [O’Neil] got copies of their prospectus and quarterly reports and plotted on charts precisely where they had purchased each of their stocks. There were over 100 of these securities and when I laid them out on a table, I made my first real discovery: Not some, not most, but every single stock had been bought when it went to a new high price. So the first thing I learned about how to get superior performance is not to buy stocks that are near their lows, but to buy stocks that are coming out of broad bases and beginning to make new highs.
The above context should make what follows more intriguing. And now, the quotes from Dreyfus’s autobiography:
The most important part of my first Wall Street job was posting weekly charts, on a daily basis. I could have gotten a hundred jobs that didn’t have this requirement. It was pure luck because I developed an affinity for weekly charts, and put a large emphasis on them throughout my career.
As to the management of the Fund. I’m keenly aware that today’s markets are vastly different from the markets of those days…But I think certain fundamentals still exist.
The management fee of $2,500 (1/2 percent of $500,000) was so small when we started the Fund that we couldn’t afford a research staff. A young man, Alex Rudnicki, and I ran the Fund. Alex was a nice boy, extremely shy-even more shy than I. We were so shy that neither of us had the courage to call an officer of a company and ask how the company was doing. Maybe this was an asset.
Alex was strong on the fundamentals. He had been a student at the Graham Dodd School of Investing. My method, of course, was different. I didn’t object to soundness [of a company], but I was interested in market timing.
I had used weekly bar charts, posted daily, from my beginning in Wall Street. I found these the best for me. Daily charts gave too many opinions, monthly charts didn’t give enough. So, weekly charts, posted daily, and looked at daily, were what we used.
I didn’t try to squeeze opinions out of the charts. Perhaps 5 percent of the time a chart position formed which, based on my experience, indicated the stock a probable buy…
A quick note on the comment directly above, while Dreyfus didn’t get totally specific, the earlier commentary from O’Neil provides a good sense of what Dreyfus viewed as buy worthy. To repeat O’Neil:
“Not some, not most, but every single stock had been bought when it went to a new high price.”
Now, back to the Dreyfus autobiography commentary:
When the stock didn’t act as we expected, we took our loss. We didn’t want to become what was called “involuntary investors.”
We thought of it as our mother’s money. The emphasis was on our. If it was someone else’s mother’s money we would be inhibited by what her accountant or her lawyer would think. This was our mother’s money.
At the same time it was a mother’s money, so we were not going to take wild risks.
One of our general rules was to follow the major trend…If you’ve got an escalator that’s going up, you’re better off betting on an individual on that escalator than on an individual on an escalator that’s going down. The whole market was like an escalator.
We didn’t often buy “cats and dogs” (that was an expression in those days)-they call them secondary stocks now.
We must keep in mind that being bullish doesn’t put the market up. Having purchasing power is what puts the market up.
In the management of the Fund, we had certain principles. One of these was to not pound the table when we had an idea. The reason for that was simple. Once you pound the table, you take away some of your flexibility (It’s harder to admit you were wrong). And admitting that we were wrong was something that we put high on the list, because taking losses early is a valuable thing when you’re speculating in the market.
…we tried to follow the major trends. We thought of the money as our mother’s money. We tried to be flexible. But the only rule we had, that was an absolute rule, was to keep thinking.
Finally, while not relevant to Dreyfus’s process, the following comment has a certain charm:
It was a bear market, the sort of market in which they say, “not even the liars made money.”
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